How to Buy Value Stocks and Avoid Falling Knives

Sometimes a crushed stock is cheap; in other cases it is only starting down the road of disappointment.

Over the past few weeks we've seen a good number of stocks suffering single-day price debacles on earnings misses or other bad news. Just Wednesday morning Candy Crush Saga game-maker King Digital Entertainment (ticker: KING) and theme-park operator SeaWorld Entertainment (SEAS) were socked for 24% and 30% losses, respectively.

The question for investors is, "Does crisis breed opportunity?" The answer depends on where the...